Floating Bonds

Better deal from the Treasury

When it comes to investing, few buys have been as disappointing as U.S. savings bonds. Since the program was set up in 1935, some $258 billion has been poured into the bonds. But because of inflation, bonds redeemed in recent years have been paid off in dollars worth much less than those invested. Though a yield of 9% has been available on EE series issues since 1981, sales have been slow.

Last week the U.S. Treasury Department unveiled a new, potentially higher-yielding certificate designed to help lure savers back to bonds. The new bonds, offered in denominations of $50 or more, will have ten-year maturities and pay interest at a floating rate with a floor that guarantees investors a minimum of 7.5% annually if held for at least five years. Higher rates will be paid if the yields on the Government's Treasury bonds and notes rise during the period. Though savers will not know for at least five years just how much more than 7.5% annually they stand to collect, the floating-rate provision at least helps protect them against rising interest rates and inflation.

One investor who obviously thought he saw a good deal coming was Ronald Reagan. No sooner had he unveiled the new program in an Oval Office ceremony than he whipped out a pen and signed up for regular purchases of the bonds under the White House's payroll savings plan.

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